2001 (7) TMI 289 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the notice and assessment u/s 158BD.
2. Treatment of credits as bogus and assessment of undisclosed income.
3. Disallowance of interest paid on alleged bogus credits.
4. Addition of unexplained investment in trading activities outside books.
5. Disallowance of expenses recorded in regular books of account.
6. Telescoping and peak credit working.

Summary:

1. Validity of the notice and assessment u/s 158BD:
Ground No. 1 challenging the validity of the notice and assessment u/s 158BD was not pressed by the assessee's counsel and hence dismissed as not pressed.

2. Treatment of credits as bogus and assessment of undisclosed income:
- Shanker Daga Credits: The AO identified a modus operandi of introducing undisclosed income through bogus credits. A sum of Rs. 50,000 was shown to have been received by cheque from Shanker Daga while a corresponding cash payment was recorded in seized Kachi cash books. The AO treated this as undisclosed income. However, for another credit of Rs. 40,000, no corresponding entry was found in the seized material. The Tribunal held that only Rs. 50,000 could be treated as undisclosed income and directed the deletion of Rs. 40,000 as it was outside the scope of block assessment u/s 158BD.
- Jethmal Lalani Credits: Similar to Shanker Daga, the AO treated all credits as bogus based on one entry. The Tribunal held that only Rs. 10,000 could be assessed as undisclosed income and sustained the disallowance of interest attributable to this amount.
- K.L. Tanwar Credits: This ground was not pressed by the assessee's counsel and hence dismissed as not pressed.
- Rajesh Kumar Dinesh Kumar Credits: The AO treated Rs. 40,000 as bogus based on entries in the Kachi cash book. The Tribunal upheld the AO's decision, finding a reasonable nexus between the entries.
- Sunheri Devi Credits: The AO treated Rs. 90,000 as undisclosed income based on entries in the Kachi cash book. The Tribunal found contradictions in the factual position and restored the issue to the AO for verification and fresh decision.

3. Disallowance of interest paid on alleged bogus credits:
The Tribunal held that disallowance of interest is consequential if the corresponding credit/deposit is found to be bogus and treated as undisclosed income based on material found during the search.

4. Addition of unexplained investment in trading activities outside books:
The AO made additions based on unaccounted sales and estimated investment in such activities. The Tribunal observed that no material was found during the search showing explicit investment and held that the AO was not justified in making such additions. The Tribunal deleted the addition.

5. Disallowance of expenses recorded in regular books of account:
The AO disallowed expenses on an ad hoc basis for being unvouched and unverifiable. The Tribunal held that in the absence of incriminating material found during the search, such disallowance was not justified in block assessment and deleted the same.

6. Telescoping and peak credit working:
The Tribunal directed the AO to work out the peak credit and make additions accordingly, allowing appropriate credit/set off while giving effect to the appellate order.

Conclusion:
The appeal was partly allowed with specific directions to the AO for verification and fresh decision on certain issues, deletion of unjustified additions, and directions for peak credit working and telescoping.